Acacia Mining plc total economic and tax contributions in Tanzania, 2017

Acacia Mining plc total economic and tax contributions in Tanzania, 2017 Prepared for Acacia Mining plc April 2018 Final Report

The accompanying analyses were prepared for the use of Acacia Mining plc. The analyses conducted in this report constitute neither an examination nor a compilation of prospective financial statements nor the application of agreedupon procedures thereto in accordance with the attestation standards established by the International Financial Reporting Standards ( IFRS ). Accordingly, EY does not express an opinion on or offer any other assurances as to whether the analyses are presented in conformity with IFRS presentation guidelines or as to whether the underlying assumptions provide a reasonable basis for the analyses.

Executive summary This report provides estimates of Acacia Mining s economic contribution in Tanzania. This is the sixth annual EY analysis of the company s economic contribution. 1 The direct impacts are for Acacia s operations in 2017; the estimates of related economic activity in Tanzania use multipliers developed in EY s previous studies. Acacia owns and operates three gold mines in Tanzania: Bulyanhulu, Buzwagi, and North Mara. The economic impact analysis described in this report finds that Acacia s Tanzanian entities support economic activity across a wide range of industries in Tanzania, including thousands of jobs with suppliers and other businesses and millions of dollars of government revenue. Table ES-1 summarizes the key findings of the analysis. Acacia s total direct, indirect, and induced economic contribution in Tanzania in 2017 included over 33,500 jobs, approximately US$345 million of labour income, and nearly US$712 million of value added (GDP). In total, including direct, indirect, and induced taxes paid by Acacia, its employees, suppliers, and other affected businesses, Acacia s total tax contribution in 2017 was an estimated US$186 million. The overall full employment multiplier (including indirect and induced economic activity) is 17, which can be interpreted as, for each direct Acacia employee, 16 additional wage jobs and selfproprietors are supported in the broader Tanzanian economy. The wage employment multiplier is 12, which can be interpreted as, for each direct Acacia employee, 11 additional wage jobs are supported in the broader Tanzanian economy. These multipliers are consistent with the high output per worker experienced in the mining industry. In general, the economic and fiscal contributions estimated in this analysis can be expected to change in proportion to changes in Acacia s direct employment, labour income, and value added in future years. The estimates would also be affected by changes in the nature of capital investment expenditures or the industry distribution of Acacia s supplier purchases. Table ES-1. Estimated economic and fiscal contributions of Acacia in Tanzania, 2017 Total number of employees; Millions of 2016 US dollars Direct Indirect & induced Total Wage employment 2,764 30,800 33,564 Labour income $111 $234 $345 Value added (GDP) $200 $512 $712 Tanzania taxes, net of anticipated VAT refunds $144 $42 $186 Addendum: Full employment (wage employment & self-proprietors) 2,764 45,100 47,864 Note: Indirect and induced employment impacts are rounded to the nearest hundred. Direct wage employment is reported as average annual headcount. Source: EY analysis based on Acacia data and publicly available economic data for Tanzania. Data provided by Acacia management were not independently audited by EY. EY iii

Specific findings of the analysis include the following: Acacia generates economic impact for each ounce of gold mined. For every thousand troy ounces of gold produced, Acacia adds approximately US$927,000 in value to the Tanzanian economy, 44 jobs in the Tanzanian economy, and US$242,000 in direct, indirect and induced tax revenue. Acacia is a high-wage employer. In 2017, Acacia employed nearly 2,800 workers in Tanzania and paid wages and benefits totaling more than US$111 million. On average, each employee received over US$40,000 in wages and benefits. Acacia provides jobs to Tanzanian nationals. Of Acacia s nearly 2,800 full and part-time wage employees in Tanzania, approximately 2,600 (96%) were Tanzanian nationals. 2 The proportion of Acacia employees who are Tanzanian nationals is consistent with other mining companies in Tanzania. 3 Tanzanian nationals employed by Acacia received an average annual wage of approximately US$24,000, a rise from these employees average annual wage of US$20,000 in 2016. The average annual wage for Tanzanian nationals employed by Acacia in 2017 was nearly 13 times higher than the average earnings of US$1,947 for Tanzanian workers throughout the economy in 2017. Acacia has a strong Tanzanian supply chain. In 2017, Acacia s Tanzanian entities purchased US$434 million of goods and services from other Tanzanian businesses for use by its Tanzania operations. These purchases of Tanzanian goods and services accounted for 67% of total supplier purchases made by Acacia s Tanzanian entities. Of this amount, approximately US$120 million was purchased from businesses local to Acacia s mines. Acacia s supply-chain spending supported nearly 19,000 indirect wage-earning jobs. Acacia s supplier spending supported jobs across all sectors of the Tanzanian economy, with the most jobs concentrated in the transportation, financial services and other services sectors. Consumption spending by Acacia and supplier employees supported over 11,800 induced jobs. These jobs, related to consumption spending by Acacia and supplier employees on food, clothing, housing, and other goods and services, supported jobs that were concentrated in the agriculture and other services sectors. Acacia s total contribution to Tanzanian GDP in 2017 was approximately US$712 million. This level of total GDP contribution is equivalent to approximately 1.5% of total Tanzanian GDP. Acacia and Acacia employees together incurred approximately US$144 million in taxes and royalties in Tanzania in 2017. Acacia incurred over US$101 million in taxes and royalties, approximately 70% of which was related to corporate income taxes and royalties, while the remaining 30% was related to unrecovered VAT, customs & excise taxes, payroll taxes, and other levies. Acacia s employees paid an estimated US$42.4 million in taxes. The majority (73%) of the estimated employee tax impact results from individual income taxes and social security contributions paid by employees. Employees also paid significant amounts of EY iv

VAT, excise, and other taxes on consumption spending. Acacia s total government revenue contribution per employee is more over 117 times higher than the national average. Per employee, Acacia contributes nearly US$38,000 of direct taxes and royalties, compared to approximately US$329 per worker economy-wide. Acacia s economic activity resulted in indirect and induced tax impacts of US$42 million, for a total tax contribution of US$186 million. Acacia invests in its local communities. In 2017, Acacia made a concerted effort to align its strategy for building sustainable communities with Tanzania s national development goals for 2025. Acacia s spending related to social investments in Tanzania totaled over US$8 million. Of this, over US$3.5 million was spent on a variety of initiatives in education, health, infrastructure, water and sanitation, primarily in the communities surrounding Acacia s mines. EY v

Contents Contents...6 1. Introduction...1 2. Estimating Acacia s total economic and tax contribution study methodology and current literature...4 2.1 Study methodology...4 2.2 Studies of mining economic multiplier effects...7 3. Acacia s direct contributions in Tanzania in 2017...8 3.1 Gross value added (GDP)...8 3.2 Employment...9 3.3 Employee compensation/labour income...11 3.4 Tanzania taxes incurred and collected...12 4. Acacia s indirect and induced economic and tax contributions, 2017...14 4.1 Acacia s direct, indirect, and induced economic contributions...14 4.2 Acacia s direct, indirect, and induced tax contributions...19 5. Acacia s social investments, 2017...22 6. Study limitations...24 7. Conclusion...26 Appendix 1. Acacia Economic and fiscal contribution comparison 2016 and 2017...27 Appendix 2. Acacia Economic and fiscal contribution comparison 2013-2017...28 References...29 Endnotes...30 EY vi

Acacia s total economic and fiscal contribution in Tanzania, 2017 1. Introduction The economic impact of Acacia s gold production extends beyond its mines and employees. The following is an update of prior EY analyses based on detailed economic and operating information for Acacia Mining plc. The following direct impacts are for Acacia's operations in 2017; the estimates of related economic activity in Tanzania use multipliers developed in the 2012 analysis. Acacia was created from Barrick Gold Corporation in an initial public offering in 2010. Acacia was known as African Barrick Gold until November 2014. Acacia owns and operates three gold mines in Tanzania Bulyanhulu, Buzwagi, and North Mara. These mines are in the Lake Zone of Tanzania, located near Lake Victoria in the northwest region. In addition to operating in Tanzania, Acacia is conducting exploration initiatives in Kenya, Burkina Faso, and Mali. Acacia entered Kenya in 2012 after the acquisition of a 51% stake in the West Kenya Project from Aviva Mining Kenya Limited. In 2016, Acacia purchased the remaining 49% of the West Kenya Project owned by Lonmin plc for US$5 million. The principle assets of the West Kenya Project are two special licenses, SL123 Ndori and SL213 Siaya. Further, there are three special licenses in West Kenya (SL265 Bukura, SL266 Sigalagala and SL267 Rosterman), of which Acacia currently owns 87%. The licenses under the two joint ventures occupy approximately 1,650 square kilometers of the Busia Kakamega - Greenstone Belt in Kenya, a region with high potential which is part of the Archean Tanzanian Craton. In 2017, Acacia declared a high-grade inferred resource on the Liranda Corridor within the West Kenya Project of 1.2 million ounces at a grade of 12.6 grams per tonne and is continuing to explore this area. Acacia s West African exploration assets are at an earlier stage than those in Kenya, but cover nearly 3,000 square kilometers of highly prospective geological belts over both Burkina Faso and Mali in 6 joint ventures. Acacia s Buzwagi mine saw a record year of production of 268,785 troy ounces of gold as the mine completed the final stage of the open pit and will move into stockpile processing for the remainder of its life. EY 1

Table 1 summarizes Acacia s mine operations in Tanzania, including 2017 production and anticipated mine life. EY 2

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Millions of troy ounces Acacia Mining s total economic and tax contributions in Tanzania, 2017 Table 1. Overview of Acacia mines Gold amounts in troy ounces First year of production 2017 production Proven and probable reserves Expected end of mine life Bulyanhulu 2001 175,491 4,697,223 N/A* Buzwagi 2009 268,785 413,994 2020 North Mara 2002 323,607 2,329,217 2028 Total 767,883 7,452,631 * Bulyanhulu mine has been running on reduced operations since Q4 2017. Source: Acacia data. Mine life dates were provided by Acacia Management. Proven and probable reserves exclude measured and indicated resources. Data provided by Acacia was not independently audited by EY. Figure 1 illustrates Acacia s share of Tanzania gold production from 1998 through 2016. Acacia opened three mines between 2001 and 2005. Over the period, Tanzania s gold mining sector was also rapidly expanding, with production increasing nearly 75% over five years and 2005 production levels more than 11 times higher than in 1998. Between 2001 and 2005, Acacia averaged 26% of total Tanzanian production. Since 2006, Acacia has produced, on average, just over half of all of Tanzania s gold. Figure 1. Acacia and total Tanzanian gold production, 1998-2016 Millions of troy ounces 2001-2004 Acacia avg. prod.: 315,500 t oz Acacia avg. share: 23% 2005-2016 Acacia avg. prod.: 686,975 t oz Acacia avg. share: 52% 2.0 1.6 1.2 0.8 0.4 0.0 Acacia gold production Non-Acacia gold production in Tanzania Source: US Geological Survey; Acacia data. Data provided by Acacia management was not independently audited by EY. Data for 2017 not available at time of publication. Mining is a highly capital-intensive sector requiring substantial up-front and ongoing capital investments. Because of the long-term nature of mining investments, once a mine has achieved consistent profitability, it can contribute to the local economy for years to come. EY 3

The following sections detail Acacia s direct contributions to the Tanzanian economy and its citizens through its mine operations as well as additional related economic activity. EY 4

2. Estimating Acacia s total economic and tax contribution study methodology and current literature 2.1 Study methodology Acacia s total economic contribution consists of three elements, described below. 1. Direct contribution. Acacia s direct contribution includes the total number of wage employees and amount of employee compensation (gross wages and salaries, employer payroll taxes, and other employee costs) at its Tanzanian entities, including mines and support offices. The direct contribution also includes the total amount of GDP attributed to Acacia s Tanzanian operations and tax payments by Acacia and Acacia employees. 2. Indirect contribution. The indirect contribution is the supplier-related Tanzanian economic activity that results from Acacia s purchases of goods and services, including spending on contractors and social investments in local communities. Purchases from other Tanzanian businesses providing engineering services, utilities, telecommunications, information services, and other operating inputs support employment in these industries. In turn, these suppliers purchase operating inputs, which support additional rounds of indirect economic contributions. 3. Induced contribution. The induced economic contribution reflects the contribution from employee spending. Employees at Acacia s mines and support offices and employees at other businesses indirectly affected by Acacia s operations use a portion of their incomes to purchase goods and services from Tanzanian businesses. These transactions support employment at businesses such as retailers, restaurants, and service companies. Figure 2 shows the three components of the total economic contribution. The left-hand side of the diagram shows the components of Acacia s direct contribution, including mining, administrative, and exploration operations in Tanzania. Each of these activities creates additional economic impacts through two primary channels: (1) domestic input purchases and (2) payments to employees and proprietor income (labour income). Domestic input purchases support additional indirect economic contributions as Acacia purchases goods and services from Tanzanian businesses. The labour income earned by Acacia and supplier employees creates induced effects resulting from consumer spending. EY 5

Figure 2. Overview of the components of economic contribution Components of Acacia s direct contribution Multiplier drivers Related economic activity Acacia s TZ gold mines: Bulyanhulu, Buzwagi, & North Mara Acacia s Tanzania administrative offices in Dar es Salaam Acacia s exploration activities TZ input purchases TZ labour income TZ input purchases TZ labour income TZ input purchases TZ labour income Indirect effect (supplier-related) Induced effect (consumption-related) The magnitude of economic contribution in Tanzania is determined by several factors, including supplier relationships with businesses in the country. This impact can be expressed using an economic multiplier which is equal to the total economic impact per unit of direct impact. The economic multipliers in this study were estimated using the 2007 Social Accounting Matrix (SAM) for Tanzania, published by the Purdue University Global Trade Analysis Project (GTAP), publicly available data reported by the Tanzanian National Bureau of Statistics (NBS), and operations and supplier purchase information provided by Acacia. (A SAM represents all economic flows in an economy, taking into account the patterns of production and demand, and various institutional relationships. 4 ) Figure 3 details the relationships between the data inputs (including source information), steps in the analysis, and the results that are described in this report. Several key inputs to the economic and tax contribution analysis have been updated to reflect Acacia s 2017 operations, including employment, employee compensation, the level of supplier purchases, and taxes paid. The multipliers applied in the following analysis have not been re-estimated and are based on a detailed analysis of Acacia s operations and Tanzanian economic and tax data from 2012. For further details please see the November 2013 EY report prepared for Acacia s total economic and tax contributions in Tanzania, 2012. EY 6

Contribution estimates Multiplier derivation Acacia Mining s total economic and tax contributions in Tanzania, 2017 Figure 3. Diagram of analysis inputs, intermediate results, and outputs A. National input-output (I-O) & statistical data TZ National Bureau of Statistics and the Purdue University Global Trade Analysis Project (GTAP) B. National I-O table unadjusted multipliers for each industry C. 2017 Acacia supplier data domestic and total supplier purchases by type of purchase D. Derivation of Acacia indirect & induced impacts E. Estimation of total effects multipliers by industry, for gross value added (GDP), labour income, and employment F. Direct economic contribution 2017 Acacia data on direct impacts (employment, employee compensation, sales, and input purchases) G. Total economic contribution Total economic contribution = E * F H. 2017 Acacia tax data Direct business taxes paid by Acacia & income taxes paid by Acacia employees I. Direct tax contribution J. 2017 ratios of taxes to economic activity USD of tax collections per USD of economic activity (e.g. personal income) K. Total tax contribution Total tax contribution = I + (G-F)*J Key Intermediate step Input Reported output EY 7

2.2 Studies of mining economic multiplier effects While there is not a significant body of Tanzanian economic impact analysis using economic multipliers, several studies in Tanzania and in peer countries have been identified to inform this analysis of Acacia s contributions to the Tanzanian economy. A review of Tanzania and mining-related economic multiplier studies found a relatively small range of mining direct and indirect output multipliers, varying from 1.0 to 2.0. Employment and labour income multipliers estimated in the reviewed studies were distributed over a wider range from 1.3 to 11.1 for employment, and from 1.2 to 5.7 for labour income. Other literature considered the implications for multiplier effects of agrarian-based economies and the mining industry s capital-intensive nature. The most similar study to this analysis was of the economic contributions of a Ghanaian gold mine, which estimated the direct, indirect, and induced economic contributions of gold mining activities, based on the GTAP database of economic relationships. 5 Further, the economies of Ghana and Tanzania share certain similarities, with predominantly agrarian economies and large (or growing) mining sectors. The Ghana study found a total gold mining employment multiplier of 28.4 and a labour income multiplier of 5.5. Most of the current economic studies for Tanzania and comparison countries include only the indirect (supplier-related) economic contribution. These studies report mining-sector employment multipliers ranging from 1.3 to 21.0. In general, mining sector multipliers reported for other countries in Africa tend to be higher than the multipliers reported for Tanzania. Some studies of mining sector economic contributions in Tanzania cite the limited supply of locally-produced operating inputs purchased by the Tanzanian mining industry as a contributing factor to the low estimated indirect multipliers. Of the eight economic multiplier studies examined, only two studies included estimates of the induced (consumption-related) economic impacts. The Ghana study estimated that employment related to induced activity comprised 26% of the total employment impact. 6 EY 8

3. Acacia s direct contributions in Tanzania in 2017 This section presents Acacia s direct contributions to the Tanzanian economy in 2017 through its operations and investment activities, presenting a snapshot of Acacia s operations during the year. Much of Acacia s operations are annual impacts, producing economic activity during each year of the mine s life. Based on Acacia s current projections, the company anticipates operating its largest mine in Tanzania through at least 2037. The economic and fiscal contributions presented in this report are described in terms of four key indicators: (1) employment, (2) employee compensation/labour income, (3) gross value added (GDP), and (4) tax payments. Each of these indicators is described in detail in the following sections, illustrating how Acacia s operations contribute directly to the Tanzanian economy. Highlights of Acacia s direct contribution include: Acacia s Tanzanian entities were mostly staffed by Tanzanian workers Tanzanian nationals made up 96% of Acacia s employees in Tanzania in 2017. Acacia s direct contribution to GDP in Tanzania was nearly US$200 million in 2017 a 2% decrease over Acacia s 2016 direct contribution to GDP of US$202 million. This can be attributed to the lower gold sales base, leading to lower taxes paid to the government. The average annual gross wage received by Tanzanian nationals employed by Acacia was approximately US$24,000 (TSH 54,578,000) far in excess of the overall Tanzanian average gross wage for paid employees of approximately US$1,947 (TSH 4,355,000). 7 In 2017, Acacia and its employees incurred approximately US$144 million in Tanzanian taxes and royalties. Acacia incurred approximately US$101 million in Tanzanian taxes, including US$80 million of corporate income taxes and royalties, US$13 million of employer payroll taxes, and US$9 million of indirect taxes, including anticipated unrecoverable VAT, customs duties, excise taxes, and other levies. Acacia s employees paid over US$42 million in taxes. 3.1 Gross value added (GDP) During 2017, Acacia s operating expenditures totaled more than US$848 million in payments to employees as wages and benefits, to the government as taxes, and to communities as purchases from local suppliers. This exceeds Acacia s cash revenue for 2017 by 13%. The decline in Acacia s cash revenue was primarily due to a ban imposed by the government on exporting unprocessed mineral concentrates. The composition of Acacia s expenditures in Tanzania is shown in Figure 4. Gross value added (reported as GDP) is the broadest measure of economic activity included in this analysis. The sum of gross value added across all industries is equivalent to a country s GDP. Acacia s contribution to GDP is the sum of its payments to labour, capital, and government (indirect taxes). In 2017, Acacia s direct GDP was an estimated US$200 million. EY 9

Figure 4. Composition of Acacia s expenditures, 2017 Millions of 2017 US dollars Corp. income tax, royalties, net VAT payments, and customs & excise taxes; US$88mm (10%) Employee payroll costs, incl. taxes; US$111mm (13%) Suppliers, contractors & communities; US$648mm (76%) Total US$848mm Note: Figures may not sum due to rounding. Source: Acacia data. Data provided by Acacia management were not independently audited by EY. 3.2 Employment The employment estimates are reported in terms of two major classifications of jobs: (1) wage employment and (2) proprietors, described below. 1. Wage employment: As defined by the Tanzania NBS, wage employment includes regular employees and casual workers. Regular employees are permanent and temporary employees who have been employed on a weekly or monthly basis for more than one month. 8 Casual workers are defined as persons receiving daily wages. 2. Proprietors: Proprietors are self-employed individuals who own or manage a business or other such establishment. Proprietors do not include subsistence farmers. Acacia s direct employment is the average number of Tanzanian and international wage employees at Acacia s Tanzania locations in 2017. These figures are based on the monthly number of paid employees, provided by Acacia, and are shown in terms of total headcount, not full-time equivalents (FTEs). In 2017, Acacia directly employed 2,764 wage employees in Tanzania, accounting for 97% of Acacia s total employment across all countries. Figure 5 shows the geographic distribution of Acacia s employment in Tanzania in 2017. The Bulyanhulu mine has the largest share of employment, employing 39% of Acacia s total workforce in Tanzania before it moved into reduced operations in Q4 2017. EY 10

Figure 5. Acacia s employment in Tanzania, by Tanzanian entity, 2017 Bulyanhulu 1,072 North Mara 923 Buzwagi 651 Dar es Salaam 112 Exploration 6 Note: Figures may not appear to sum due to rounding of average monthly headcounts. Source: Acacia data. Data provided by Acacia management were not independently audited by EY. On average, 96% (2,642 employees) of Acacia s total 2,764 employees in Tanzania during 2017 were Tanzanian nationals. Studies of Tanzania s governance and oversight of the mining sector conducted in 2011 cited the perception of limited job opportunities for Tanzanian nationals at mining operations due to the high number of international employees working on-site. 9 However, the vast majority of Acacia employees have consistently been Tanzanian nationals. In fact, the number of foreign nationals employed by Acacia has decreased by 76% since 2012. According to a report published by the Tanzanian Ministry of Energy and Metals (MEM) in 2011, Tanzanian nationals made up 90% of employment at both the Bulyanhulu and Buzwagi mines in 2009. 10 By December 2017, Acacia had increased relative employment of Tanzanians at the North Mara mine to 95%. Overall, the share of Acacia s employees in Tanzania that are Tanzanian nationals has increased from 94% to 96% over the past four years. The share of foreign nationals has decreased from 6% to 4%, representing a nearly one-thirds reduction in their share of employment. The composition of Acacia s employment in Tanzania from 2012 to 2017 is shown in Table 2. EY 11

Table 2. Composition of Acacia s employment in Tanzania, 2012-2017 2012 2013 2014 2015 2016 2017 Tanzanian nationals 4,953 4,691 4,177 3,781 2,928 2,642 Foreign nationals 517 394 283 206 159 122 Total Acacia employees in Tanzania 5,470 5,085 4,460 3,987 3,087 2,764 % Tanzanian nationals 91% 92% 94% 95% 95% 96% % Foreign nationals 9% 8% 6% 5% 5% 4% Source: Acacia data. Data provided by Acacia management were not independently audited by EY. Note: 2017 data reflects average headcount across the entire year. Acacia operations are also supported by a significant number of mining, engineering, security, and construction contractors who work on-site at Acacia mines and facilities. In 2017, Acacia reported US$133 million in contractor spending related to the 1,416 contractors working on-site at Acacia s mines, of which 1,326 (94%) were Tanzanian nationals. These contractors are employed by other businesses (as opposed to independent contractors contracted as individuals) and therefore these contracts are categorized as purchased services. 3.3 Employee compensation/labour income Total employee compensation includes salaries, wages, and benefits. Salaries and wages are defined as gross wages before deducting employee individual income tax. Benefits include employer-contributed health insurance and retirement benefits, employer social security contributions and payroll tax (skills and development levy), and the value of other employee costs including training, meals, and travel. As shown in Figure 6, in 2017, Acacia s employees in Tanzania earned a total of US$111 million in compensation. This amount includes US$13 million of employer payroll taxes paid by Acacia in Tanzania, of which US$3 million was paid on salaries to international employees. Further, according to data provided by Acacia, a significant amount of individual income tax was paid by Tanzanian national employees in 2017 US$21 million (68% of individual income tax paid by all Acacia employees in Tanzania). The average wage for Tanzanian nationals employed by Acacia in Tanzania was more than US$24,000 in 2017. Of total take-home wages paid by Acacia to employees in Tanzania, nearly two thirds (65%) was paid to Tanzanian nationals. EY 12

Figure 6. Composition of Acacia s employee compensation in Tanzania, 2017 Millions of 2017 US dollars $120 $100 $80 US$111mm Employer payroll taxes, US$13mm Employee taxes, US$31mm $60 $40 Take-home salaries & wages, US$67mm $20 $0 Note: Employee taxes include individual income tax withholding and social security contributions. Employer payroll taxes include employer social security contributions and skills and development levy payments. Source: Acacia data. Data provided by Acacia management were not independently audited by EY. 3.4 Tanzania taxes incurred and collected Acacia s tax contribution has three components: (1) direct taxes paid by Acacia, including corporate income taxes and royalties, as well as indirect taxes on operations such as value-added tax, payroll taxes, import duties and fuel levies; (2) individual income taxes paid by Acacia s employees; and (3) taxes withheld from suppliers and contractors and remitted by Acacia on their behalf. In 2017, Acacia incurred and withheld a total of US$139 million in Tanzanian taxes and royalties, as shown in Figure 7. Corporate income taxes and royalties comprised 69% of taxes incurred by Acacia (and, more broadly, 57% of total taxes incurred or collected by Acacia). Acacia paid US$45 million in royalties and US$35 million in corporate income tax to the Tanzanian government. In 2017, Tanzania made legislative changes to increase gold royalties from 4% to 6%. Further, an inspection fee of 1% of the value of all mineral exports has been imposed. Indirect taxes shown in Figure 7 include net VAT payments, fuel levies, environmental fees and charges, and import duties. The net VAT payments included for Acacia are VAT payments on inputs, net of refunds. Tanzania currently charges an 18% VAT for standard-rated supplies. Exports of goods and services are subject to a 0% VAT. 11 Fuel levies are assessed at US$200,000 per site for Acacia properties. Payroll taxes paid by Acacia in Figure 7 include social security contributions and skills and development levy payments. Social security contributions are paid by both employers and EY 13

Tax collected and remitted by Acacia Taxes withheld on behalf of employees Taxes paid by Acacia Acacia Mining s total economic and tax contributions in Tanzania, 2017 employees in Tanzania, with each contributing 10% of gross salary to the National Social Security Fund. 12 In addition to the taxes incurred by Acacia, Acacia withheld nearly US$31 million on behalf of its employees in 2017 an estimated US$10 million for employee social security contributions, and almost US$21 million for individual income tax withholding. Individual income taxes are assessed over five brackets, with a top marginal rate of 30%. Allowable deductions include social security contributions and certain health care costs. 13 The estimated US$21 million of individual income taxes withheld by Acacia in 2017 was 28% of total taxable employee earnings, in line with the average statutory rate. Acacia also withheld and remitted US$7 million in withholding taxes on behalf of its suppliers. Figure 7. Distribution of Acacia 2017 taxes paid and withheld Millions of 2017 US dollars; total 2017 taxes paid and withheld by Acacia = US$139 million Corporate income tax & royalties Indirect tax Payroll taxes paid by Acacia $9mm $13mm $80mm Payroll taxes $31mm Supplier spending withholding tax $7mm Note: Indirect taxes include anticipated unrecoverable VAT payments, import duties, fuel levies, environmental levies, and other charges and fees. Payroll taxes paid by Acacia include employer social security contributions and skills and development levy payments. Payroll taxes paid by Acacia employees includes individual income tax. Figures may not appear to sum due to rounding. Source: Acacia data. Data provided by Acacia management were not independently audited by EY. EY 14

4. Acacia s indirect and induced economic and tax contributions, 2017 Acacia s contributions to the Tanzanian economy extend beyond the mine gates. As described in Section 3, Acacia generates indirect and induced economic activity through its purchases from Tanzanian suppliers and the local consumer spending of their employees. Further, this activity results in additional taxable sales and income. Highlights of the total economic contributions include: For every direct employee at Acacia s mines and administrative offices in Tanzania, there were approximately 12 paid employees and 5 self-employed individuals supported in the broader economy. On average, these workers earned US$5,178 of labour income in 2017, compared to an economy-wide average of US$1,947 (in 2017 US dollar terms) as reported in the 2014 labour force survey. 14 Approximately 45% of the US$648 million of purchases of services and supplies made by Acacia s Tanzanian entities were from domestic suppliers. This indicates that Acacia s Tanzanian entities had an import percentage of 55%, which represents a decrease of 10 percentage points since 2016. Approximately 95% of Acacia s US$648 million of total procurement expenditures in 2017 over US$613 million were of a recurring nature, including operating input purchases and sustaining capital investments. The remaining 5% was for investment in mine expansion and development. Economic activity related to Acacia s operations in Tanzania generated a total of nearly US$186 million of tax payments by businesses and individuals. 4.1 Acacia s direct, indirect, and induced economic contributions In 2017, Acacia s total economic contribution, including supplier and consumer spending impacts, was an estimated US$712 million of GDP, of which US$345 million was labour income (income earned by wage employees and proprietors), as shown in Table 3. Through supplier purchases, Acacia s activities generated US$304 million of indirect GDP, including US$132 million of labour income for an estimated 22,000 wage and self-employed workers in Tanzania. Consumer spending by Acacia and supplier employees at local retailers, grocers, and other businesses supported an estimated additional 23,100 wage employees and sole proprietors, earning a total of US$101 million in labour income (averaging approximately US$4,400 per worker; 9.8 million TSH). The analysis presents employment impacts separately for wage employment and full employment, which includes wage and self-employed workers. Depending on the types of businesses from which suppliers and individuals purchase goods and services, the number of jobs in each category may differ. For example, domestic purchases from large multinational firms create wage employment opportunities in Tanzania, compared to additional demand for local personal services, which are more likely to create opportunities for entrepreneurs. EY 15

Table 3. Acacia s total economic contributions in Tanzania, 2017 Number of employees; Millions of 2017 US dollars Direct contribution Indirect contribution (supplier spending) Induced contribution (employee spending) Total contribution Wage employment 2,764 19,000 11,800 33,564 Labour income $111 $132 $101 $345 Value added (GDP) $200 $304 $208 $712 Addendum: Full employment (Wage employment & proprietors) 2,764 22,000 23,100 47,864 Note: Direct employee headcount does not include contractors. Contractors are included as indirect contributions. Full employment includes wage employees and proprietors (self-employed individuals). Figures may not sum due to rounding. Source: EY analysis based on Acacia data. Data provided by Acacia management were not independently audited by EY. In their economic benefits report, MEM states that mines have significant potential to act as a catalyst for local business development due to the demand it generates for goods and services. 15 Acacia makes significant purchases of goods and services to support its annual operations, much of which is from Tanzanian businesses. As shown in Figure 8, Acacia s Tanzanian entities purchased US$434 million of goods and services from within Tanzania related to its operations, accounting for 67% of total input purchases. Of this amount, US$120 million was provided by suppliers that are located near the purchasing mine or in the closest regional/major town. The remaining US$314 million was purchased from businesses operating within Tanzania, but outside of the immediate impact area or closest regional/major town surrounding the mine. Further, according to data provided by Acacia, 45% (US$196 million) of the US$434 million of Tanzanian purchases were purchased from Tanzanian-owned businesses. Domestic purchases of goods and services generated rounds of supplier purchases, which resulted in an estimated US$304 million of indirect GDP in Tanzania. Acacia s Tanzanian capital investments in 2017 are included in Acacia s total Tanzania procurement of US$434 million, shown in Figure 8. During 2017, Acacia invested nearly US$112 million to further develop or support existing projects. These expenditures included capitalized exploration and evaluation costs and capitalized development. EY 16

Figure 8. Location of Acacia s suppliers for operating inputs and capital expenditures, 2017 Total 2017 supplier purchases = US$648 million International, US$119mm Same region as mine, US$120mm Tanzania, US$434mm Other TZ regions, US$314mm South Africa, US$76mm Rest of Africa, US$19mm Note: The immediate impact area, as defined by Acacia, includes the surrounding communities as well as the nearest regional or major town. Businesses within the immediate impact area are shown as Same region as mine purchases. Purchases from suppliers outside of the immediate impact area are shown as Other TZ regions. Source: Acacia data. Acacia data was not independently audited by EY. The types of goods and services that Acacia s Tanzanian entities purchases from Tanzanian businesses create different impacts in the economy. The level of indirect impact primarily depends on two factors: (1) the amount of goods or services that are purchased domestically and (2) the average levels of output per worker for each industry. The total level of output per worker in each industry reflects the dependence on labour for production. For example, the mining sector is capital intensive and has a very high output per worker, compared to the national average for all industries. Alternatively, most service sectors have low output per worker because they rely on labour to produce their product and generate revenue. The composition of purchases made by Acacia s Tanzanian entities in 2017 is displayed in Figure 9, classified by activity or product of the supplier. Purchases of machinery and equipment from Tanzanian wholesalers are classified within the service sector as trade. Machinery and equipment manufactured in Tanzania would be classified within the industrial sector. EY 17

Figure 9 Distribution of purchases of Tanzania-supplied goods and services by Acacia s Tanzanian entities, by sector, 2017 Total 2017 purchases from Tanzanian suppliers by Acacia s Tanzanian entities = US$434million Agriculture 2% Service 55% Total $434mm Industrial 43% Note: The industrial sector includes mining, manufacturing, utilities, and construction. The service sector includes trade, transportation, and communication; financial services; business and professional services; health, educations, and public administration; and other services. Source: EY analysis of data provided by Acacia. Acacia data was not independently audited by EY. Figure 10 shows the distribution of the estimated direct, indirect, and induced wage employment impacts by major industry sector. The majority of the indirect wage employment is within the trade and transportation, financial services, and other services sectors. In 2017, approximately 5% of Acacia s total purchases were for sustaining capital at Acacia s mines. This investment includes replacement equipment, capitalized improvements to buildings and facilities, and other sustaining capital. Domestic purchases of equipment are frequently through a Tanzanian wholesaler selling equipment that was manufactured elsewhere and imported into Tanzania. This activity generates employment in the wholesale trade industry, classified as trade and transportation. Acacia s Tanzanian entities are supported by a significant number of mining, engineering, security, and construction contractors who work on-site at Acacia mines and facilities. Contract employment is classified as a purchased service and is included in the indirect wage employment impact. In 2017, Acacia reported US$133 million in contractor spending related to the 1,416 contractors working on-site at Acacia s mines, of which 1,326 (94%) were Tanzanian nationals. Induced consumption-related employee spending reflects the household purchasing distribution in Tanzania. The largest share of induced wage employment is in the agricultural sector. According to the GTAP model, agriculture products make up nearly 62% of the total domestic goods and services purchased by households. Induced jobs are also supported in the trade sector (through spending at retail stores) and other services (which includes personal services, EY 18

entertainment, restaurants, and hotels), as well as for financial services, manufacturing, and healthcare and education. Figure 10. Distribution of estimated direct, indirect, and induced wage employment, 2017 Other Services Trade & transport Agriculture Financial services Mining Manufacturing Health, educ, & public admin Prof. & business services Utilities Construction 1,423 1,193 992 830 2,687 3,796 6,520 6,383 5,138 4,579 Direct employment Indirect employment Induced employment Note: The figure does not include the estimated number of proprietors in each industry. Other services includes personal services, recreation and entertainment, and hospitality and food service. Trade & transport includes retail and wholesale trade, transportation services, and communications services. Source: EY analysis based on Acacia data. Data provided by Acacia management were not independently audited by EY. The estimated wage employment multiplier of 12 can be interpreted as, for each direct Acacia employee, 11 wage employees are supported through indirect and induced economic activity, totaling 12 employees overall. Including proprietors, the employment multiplier increases to 17 (i.e. for every one direct Acacia employee, there are an estimated 16 additional wage and selfemployed positions supported in the broader Tanzanian economy). Figure 11 compares the estimated employment impacts for wage employment and full employment, which includes proprietors. The majority of the indirect impact related to supplier purchases is comprised of direct wage employees. The analysis assumes that the companies that Acacia directly purchases goods and services from in Tanzania are not sole proprietorships. However, the additional rounds of supplier purchases (Acacia s direct suppliers purchasing from other Tanzanian businesses) add an estimated 3,000 proprietors. Self-employed labour accounts for 11,300 jobs out of the induced employment impact of 23,100 jobs. As employees spend their incomes in the local economy, it is likely that they purchase food and personal services from individuals who own their own businesses such as restaurants, convenience stores, personal service businesses, and construction contractors. EY 19

Figure 11. Comparison of estimated employment impacts, 2017 50,000 40,000 30,000 20,000 10,000 0 47,864 33,564 22,000 23,100 19,000 11,800 2,764 2,764 Direct Indirect Induced Total Wage employment Full employment Note: Full employment includes wage employees and proprietors (self-employed persons, excluding subsistence farmers). Source: EY analysis based on data provided by Acacia. Data provided by Acacia management was not independently audited by EY. 4.2 Acacia s direct, indirect, and induced tax contributions Taxes paid and payable by Acacia and Acacia s employees collectively make up Acacia s direct tax impact, totaling US$144 million in 2017. Acacia incurred US$101 million in Tanzanian taxes and royalties. In addition to paying nearly US$31 million in individual income taxes and social security contributions, Acacia s employees paid approximately US$12 million in other taxes and fees, including VAT and excise taxes on their purchases. Suppliers and businesses that sell to Acacia and supplier employees also pay taxes on their sales and incomes related to the increased demand for their goods and services. Businesses and individuals paid an estimated US$42 million in taxes related to indirect and induced economic activity. Acacia s tax payments in Tanzania were approximately 19% of total labour income (wages and benefits) in 2017. In that year, VAT, customs duties, and excise taxes paid by businesses and individuals totaled 9% of this labour income. Payroll taxes include social security and skills and development levy payments. In 2016, these taxes totaled an estimated 9% of labour income. EY 20

Table 4. Acacia s total tax contribution, 2017 Millions of 2017 US dollars Paid by Acacia Direct Tax Paid by Acacia employees Indirect & induced tax Total tax Corporate income tax and royalties $80 - $3 $83 Individual income tax - 21 6 27 Value-added tax (VAT) 2 5 11 17 Customs & excise 5 5 11 21 Payroll taxes 13 10 1 23 Other taxes and fees 2 1 10 14 Total taxes paid $101 $42 $42 $186 Note: The direct VAT paid by Acacia reported above is the estimated VAT paid on input purchases that will be unrecovered by Acacia through refunds. Withholding taxes collected and remitted by Acacia are not included in the direct tax impacts. These taxes are reflected in the indirect tax impact, as the liability of the suppliers. Payroll taxes include social security contributions and the skills & development levy. Other taxes and fees include capital gains taxes, as well as business license fees, motor vehicle license, and other similar taxes and fees. Figures may not appear to sum due to rounding. Source: EY analysis based on Acacia data. Data provided by Acacia management were not independently audited by EY. Overall, tax payments by Acacia s Tanzanian entities comprised 55% of the total estimated tax impact, shown in Figure 12. Of the total, 43% were corporate income tax and royalty payments paid by Acacia. Estimated unrecoverable VAT and customs and excise duties paid by Acacia comprised a combined 4% of the total tax impact of US$186 million. Other taxes paid by Acacia included payroll taxes, fuel levies and taxes paid to local governments, totaling 8% of estimated taxes overall. In order to properly quantify the contribution of Acacia s VAT payments to the Tanzanian economy, this analysis assumes that Acacia s direct VAT contribution consists only of those VAT payments not recovered through refunds. Acacia estimates that VAT claims of US$1.7 million will be disallowed in 2017. This is significantly lower than the US$3.7 million of VAT claims disallowed in 2016. In July 2015, the government enacted a new VAT Act, which precluded the eligibility of certain items like passenger vehicle spare parts and catering for a VAT refund. Acacia had requested a special ruling over the above two items in 2015. However, the request was denied after months of deliberation, causing the a large part of the VAT disallowed for 2015 to be paid in 2016, in addition to the VAT disallowed for 2016. EY 21

Figure 12. Composition of Acacia s total tax contribution from operations, 2017 Total 2017 tax impact = US$186 million Indirect and induced tax 23% Paid by Acacia employees 23% Acacia taxes 55% Corporate income & royalties 43% Other taxes 8% Customs & excise 3% VAT 1% Note: Percentages shown are percentages of the total estimated tax impact of US$186 million. Figures may not appear to sum due to rounding. Source: EY analysis based on Acacia data and data published in Tanzania s national accounts. Data provided by Acacia management were not independently audited by EY. The US$42 million of taxes related to indirect and induced economic activity accounted for 23% of the total tax impact. Of this, customs and excise taxes made up the largest share at 26%, followed closely by VAT, which comprised 25% of the total taxes related to indirect and induced activity. Other taxes include taxes and fees such as business and motor vehicle license fees, employer payroll taxes (including social security and the skills development levy), and capital gains taxes. EY 22

5. Acacia s social investments, 2017 Beyond economic contributions, Acacia made substantial social investments that can have longlasting health, education, and infrastructure benefits in Tanzania. In 2017, Acacia invested a total of US$3.6 million in its Tanzania community investment program, the Maendeleo Fund, summarized in Table 5. Of this spending, US$1.0 million (28%) was invested on education, US$0.6 million (17%) went towards health programs, and US$0.5 million (15%) went towards community investment initiatives. This is part of Acacia s Sustainable Communities strategy, which focuses on improving lives the development of thriving local economies, access to good social infrastructure and maintaining trusting relationships with surrounding communities. Table 5. Summary of Acacia s 2017 social contributions in Tanzania Thousands of 2017 US dollars North Mara Buzwagi Bulyanhulu Other Tanzania Regions Inter national Maendeleo Fund spending Arts, Culture and Sports 23 99 0 0 0 122 Education 642 119 145 108 0 1,014 Economic Development 103 179 159 96 0 538 General 0 0 0 131 413 543 Government Affairs and Stakeholder Engagement 31 0 0 0 0 54 Health 579 0 56 0 0 635 Roads & Bridges 431 0 0 0 0 431 Water & Sanitation 29 200 100 0 0 428 Total Maendeleo Fund spending $1,837 $598 $461 $335 $413 $3,644 Municipal taxes 1,025 426 246 0 0 1,697 Overhead costs 859 215 387 1,411 0 2,872 Total community investment $3,722 $1,239 $1,094 $1,745 $413 $8,213 Note: Figures may not appear to sum due to rounding. Source: EY analysis based on data provided by Acacia Data provided by Acacia management were not independently audited by EY. This social investment spending is included in Acacia s US$434 million of supplier spending in Tanzania and is captured in the resulting indirect and induced contributions. However, the longterm impact of these investments resulting from, for example, access to medical facilities and potable water are not estimated in this study. Acacia s Maendeleo Fund supports a wide variety of projects in Tanzania. Some of these projects have short-term, one time impacts. The fund was established in 2011 as part of commitment to promoting sustainable development in Tanzania. Funding priority is given to investments that support community development and capacity building, access to health, education, water and environmental projects within communities surrounding our operations. Since its inception, the Acacia Maendeleo Fund has invested US$45 million in community development initiatives across a range of areas including education, health, water and Sanitation, infrastructure, and livelihoods. The following sections describe three significant Maendeleo Fund projects in more detail. Total EY 23